What is the RWA track that Binance, Goldman Sachs and other giants are entering?

The concept of RWA (Real World Assets) has been widely discussed in recent months, and major institutional giants are laying out on this track, believing it is time to enter and expressing long-term optimism. For example, earlier this year, Goldman Sachs' digital asset platform officially launched and helped the European Investment Bank issue 100 million euros of two-year digital bonds; subsequently, the electrical engineering giant Siemens also issued 60 million euros of digital bonds for the first time on the blockchain; Binance released a 34-page in-depth research report on RWA in March this year; Citibank has been vigorously promoting, pointing out in the report that almost anything of value can be tokenized, and the tokenization of financial and real-world assets may be a "killer application" for blockchain breakthroughs, predicting that by 2030, there will be 4 trillion to 5 trillion dollars of tokenized digital securities.

It can be seen that the RWA track is enough to be a key focus narrative this year, and this article will explain and analyze the relevant content of the RWA track, and take stock of the ecological projects worth paying attention to, and share with you potential speculative opportunities.

What is RWA

RWA is the tokenization or NFTization of real assets, which can put real-world assets such as real estate, bonds, stocks, etc. on the chain. Owning tokens represents ownership of the item in the real world, and you can carry out transactions such as loans, rentals, and purchases on the chain. In fact, this concept has had successful cases of RWA in the currency circle. The stablecoins we often use, such as USDT and USDC, are tokenized representations of the US dollar.

The Impact and Advantages of RWA+DeFi

• The most core impact of RWA on DeFi is to bridge traditional finance and crypto finance: RWA brings off-chain financial assets to the chain, and RWA tokens can redeem off-chain assets, bridging the gap between real-world assets and DeFi. This can be achieved by increasing the externalities of DeFi and improving the liquidity of various assets to achieve the sustainability of crypto finance.

• Breaking the closed system and injecting more gameplay and possibilities into DeFi. Currently, DeFi is a relatively closed environment, with income coming from the internal system, such as transaction fees, lending fees, staking rewards, and inflation rewards. RWA can make the underlying assets more diverse and can represent any possible item in real life, so innovative gameplay will continue to emerge in crypto finance.

• Expand DeFi income and provide continuous motivation for players: As the yield of various DeFi protocols decreases and market uncertainty increases, DeFi investors increasingly need a diversified portfolio of real-world assets to obtain stable returns unrelated to cryptocurrencies. For example, US Treasury bonds have a 5% yield, high returns and low risk, making them a preferred investment target for many investors after last year's bear market. Through RWA, investors can enter the traditional off-chain market, make free investment choices, and obtain diversified returns.

• The commercial value and potential of RWA tokenization are recognized in DeFi, attracting major institutions to enter the market. Traditional financial institutions hold a large number of real assets, such as real estate, stocks, and bonds, but the ownership and trading of these assets usually require certification and supervision by intermediary institutions, which takes a lot of time and cost. The use of RWA can bring more liquidity and value to enterprises by reducing the need for intermediary institutions, automating processes, and increasing liquidity, thereby increasing revenue and competitiveness.

Analysis of RWA Projects

Currently, based on the nature of the assets and the different ways of tokenization, RWA can be divided into stablecoins, private credit, stocks and bonds, real estate, carbon credit certificates, metals, etc. Here we take stock of several very promising RWA projects:

1. Centrifuge Private Credit

More information:

https://app.vedao.com/projects/e87bc16899c398b2f9bf0958aee88733ae515db7ca4f38426cbefa42e55a1bd3

Centrifuge, launched in 2017, is the first project on MakerDAO to do RWA, and is an on-chain ecosystem for structured credit, focusing on securitizing and tokenizing previously illiquid debt. It aims to help mid-sized companies obtain financing with lower thresholds, while allowing investors to earn income from real assets.

Centrifuge basically simulates the process of corporate credit in traditional finance, but eliminates some of the intermediaries and cumbersome off-chain processes using DeFi+NFT. The financing process on Centrifuge can be roughly summarized as follows: the borrower uploads their off-chain real assets to create an NFT with legal effect for collateral, and receives interest-bearing ERC20 tokens, which investors can purchase with DAI; the issuer redeems the financing at maturity, and investors earn returns. The fund pool generated by the interest-bearing ERC20 tokens is divided into primary and senior pools, with higher returns but also higher risks in the primary pool, and lower returns and risks in the senior pool.

Previously disclosed data from the official website shows that Centrifuge has raised over $385 million in financing, and TVL has doubled compared to last year. Its tokenized assets have been integrated into the entire DeFi ecosystem, including $220 million in risk-weighted assets on MakerDAO.

2. Ondo Finance Public Bonds

More information:

https://app.vedao.com/projects/1118b26b113983bd04913f64d05d81c4aa64457fe04edc8ceadcc05b3918a627

Ondo Finance is a DeFi protocol founded by former Goldman Sachs digital asset team member Nathan Allman and former Goldman Sachs technology team vice president Pinku Surana. It has received $34 million in investment, with investors including Pantera Capital, Coinbase Ventures, Tiger Global, and Wintermute, among others.

It is understood that Ondo Finance has launched four tokenized funds managed by asset management giants BlackRock and Pacific Investment Management Company (PIMCO): US Money Market Fund (OMMF), US Treasury Bonds (OUSG), Short-Term Bonds (OSTB), and High-Yield Bonds (OHYG), with an average yield of around 6%. However, for compliance reasons, Ondo Finance will adopt a whitelist system, and investors need to go through KYC and AML screening before signing subscription documents, and can trade fund tokens with stablecoins or dollars in licensed DeFi protocols, with Ondo Finance charging a 0.15% management fee per year.

3. MakerDAO Bonds, Stablecoins

More information:

https://app.vedao.com/projects/0e709f714d8d5157e0f56051ff0072cf8f6ee585ef847da7678e2740ddd1a307

MakerDAO is an open-source decentralized autonomous organization created on the Ethereum blockchain in 2014, and anyone holding its token MKR can participate in project governance. In addition, MakerDAO has issued the stablecoin DAI and supports and stabilizes the value of DAI through mechanisms such as collateralized debt positions.

MakerDAO issued the world's first DeFi-based real asset loan and early laid out the RWA track. In 2020, MakerDAO officially made RWA a strategic focus and released a guide and plan for introducing RWA. In addition to issuing the stablecoin DAI, MakerDAO has passed proposals for RWA as collateralized forms of real estate, invoices, and receivables to expand the issuance of DAI.

In 2022, MakerDAO also jointly launched a $2.2 billion fund with BlockTower Credit to provide funding for real-world assets. MakerDAO's RWA business scale exceeds $680 million, with $500 million in RWA collateral being U.S. Treasury bonds, and French bank Societe Generale borrowing $7 million from MakerDAO, with its position supported by $40 million worth of AAA-rated bonds as OFH tokens. It is reported that in December 2022, about 70% of MakerDAO's revenue came from RWA.

MakerDAO can be considered an early entrant into RWA, but the concept of RWA has been lukewarm until the scale of DeFi rebounded in 2023 and other traditional giants entered the game, bringing a wave of attention to RWA. With its early layout and rich experience, including previous collaborations, support for the DAI economic value, and successful token issuance, MakerDAO is widely expected and favored by the market.

4. RealT Real Estate

More information:

https://app.vedao.com/projects/6826a784a4040e83082eebb340c40fa00eeabcefb68ce990ea054acad32c5e9f

RealT is a company that tokenizes off-chain assets and is one of the pioneers in asset tokenization, mainly tokenizing real estate in the United States. RealT can solve the liquidity and transaction cost problems of real estate assets by tokenizing real estate. For example, real estate that originally needed to be bought and sold as a whole can be sold in fragments, allowing ordinary investors to participate in investments in the form of partial ownership. Investors who purchase its token RealToken essentially invest in a real estate asset and receive a document proving their ownership of that portion of the asset. Even if RealT goes bankrupt or disappears for some reason, RealToken remains valid and the interests of RealToken holders will not be affected. The value and effectiveness of RealToken are not affected by RealT.

RealT will also use IPFS technology to permanently store the documents proving the effectiveness of these assets. Once these documents are stored in IPFS, they will be permanently stored and cannot be tampered with, and no longer need to rely on third-party institutions to store these documents. In addition to storing documents proving assets, data and information about property inspections, insurance, property taxes, etc. will also be uploaded to the IPFS system. These data and documents will provide real, objective, and verifiable information about the real estate, record all transaction histories of the property, and easily verify their authenticity.

After securely storing asset proofs and data, the next step is to store the property prices. RealT will introduce an oracle so that real estate assessment data can be obtained directly from the market without the need for third-party institutions, in order to reflect the price of real estate as objectively and truthfully as possible. This will achieve complete openness and transparency of real estate data and thorough openness and transparency of property value assessments.

With a total global real estate value of about $360 trillion, such a colossal market makes us eagerly anticipate its activation and innovation in DeFi after RWA.

5. Galileo Protocol Open Infrastructure

More information:

https://app.vedao.com/projects/8b1f2776fe8597fa4f80d41c590eb0cfc63e806b1cef587dd8fed984c9d257d3

The Galileo Protocol is a platform for tokenizing and redeeming physical assets, and is an open-source infrastructure for executing smart contracts. It allows the creation of "pNFTs" representing physical goods, issued on multiple chains and can interact with any blockchain.

Through the Galileo platform, users can diversify their crypto investment portfolios into physical assets and obtain illiquid assets. Moreover, Galileo can ensure that the related physical assets represented by pNFTs are genuine and do not contain counterfeit goods. Because pNFTs are QRC20 standard tokens, they can achieve interoperability on all major chains, providing storage, source tracking, and other information about these assets, thereby avoiding counterfeiting and fraud.

LEOX, as the native token of Galileo, allows users to play four different roles, namely the owner, the buyer, the redeemer, and the fractional investor.

In Galileo, as a seller, you can generate an NFT to prove that you are the owner of a real asset. As a buyer, you can directly purchase the real asset you want. After purchase, the seller will send the NFT to the buyer, making the buyer the new formal owner of the real estate. As a fractional investor, you may only purchase a portion of the real estate asset. For example, for real estate, the highly valuable asset will be fragmented, allowing multiple fractional investors to invest in the real estate asset. As a redeemer, you can directly redeem the asset and take possession of it.

Can RWA accumulate and burst forth?

In 2023, the narrative of RWA has attracted attention, and some institutions have entered the construction of the RWA field. However, the current field is still in the early stages of development and is relatively small in scale; to a certain extent, it needs to rely on various DeFi protocols, especially in the area of oracles, which has always been an imperfect infrastructure; and finally, there are compliance issues in the RWA field, and the builders in this field are constantly struggling with regulations, aiming to link Web3 with the real world.

Currently, there are no leading projects in the RWA field, but driven by the huge market demand and the wave of connection between on-chain and off-chain finance, it is necessary to pay attention to this field, and the time will come sooner or later. It is also believed that the projects mentioned in this article can stand out, drive the entire track, make DeFi more active and interesting, and provide investors with more investment opportunities.

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